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In the News – U.S. economic growth hits 3% rate in second quarter

WASHINGTON (MarketWatch) — The U.S. economic rebound in the second quarter was stronger than initially reported, as a lift to consumer spending and business investment led to the strongest growth in more than two years.

Economists surveyed by MarketWatch expected a smaller upward revision in second-quarter GDP to a 2.8% rate.

The economy picked up from a 1.2% rate in the first quarter. A slow first quarter followed by an improved second quarter also occurred in two of the past three years. Economists say that the most recent data suggest the U.S. is on track to maintain a 3%-plus clip in the third quarter.

The last time the U.S. economy had two quarters above 3% was in 2014.

President Donald Trump is relying on growth above 3% to generate enough revenue for the government to pay for tax cuts and more infrastructure spending.

Consumer spending was the main engine for the strength in the second quarter, rising a revised 3.3% in the second quarter. That was up from the government’s original estimate of a 1.9% gain. Americans spent more on goods and services, including car purchases.

Outlays of business investment rose at a revised 0.6% clip in the second quarter, up from a prior 0.4% estimate.

The government reported that corporate adjusted pretax profits were up 6.7% over the past year, despite falling at a 0.5% quarterly rate in the second quarter.

The report also confirms that inflation has moved away from the Federal Reserve’s 2% annual target in the second quarter.

Inflation as measured by the Fed’s preferred PCE price index decelerated to a 1.6% annual pace in the quarter, down from a 2% rate in the first quarter.

Core PCE slumped to a 1.5% rate from a 1.8% rate in the prior three months.

Soft inflation is raising questions over whether the Fed will go ahead with another interest-rate hike this year. The central bank had penciled in three hikes this year and has already engineered two hikes in the first half of the year.

U.S. futures pointed to a higher opening for the Dow Jones Industrial AverageDJIA, +0.12% in the wake of the GDP report, as well as another showing brisk jobs growth in August.